Australia proposes workplace reforms targeting ‘loopholes’

Less than a month ago, our article foreshadowed a third tranche of workplace relations reforms in Australia. Early in the week, the Workplace Relations Minister Tony Burke unveiled the detail of those proposed changes tabling the Fair Work Legislation Amendment (Closing Loopholes) Bill.

On 7 September, the Senate decided to postpone an inquiry into the proposed reforms, which will delay their passing until 2024. This decision stems from mounting concerns regarding the Bill's extensive scope of reforms and the time required to consider their impacts.

Some employer groups are concerned that these changes would introduce confusion, increase hiring process uncertainties and impose extra costs for consumers. Now is a good time for employers to consider their organisations' use of casual employees and labour hire, to ensure that they are prepared to implement the changes once it becomes certain exactly how and when they will come into effect.

It is expected that some of the reforms proposed will be passed into law next year. Accordingly, in this article, we look at the major areas of reform, and consider what they likely mean for employers.

Proposed changes

Union delegate rights

Proposed commencement – day after Royal Assent

The Bill proposes to grant union delegates new rights under model terms to be included in all modern awards and enterprise agreements to:

• contact and communicate with workers – both members and eligible members;
• provide reasonable access the workplace and workplace facilities; and
• provide reasonable access to paid time, during normal working hours, for union training (other than for small businesses).

The Bill also prohibits employers from unreasonably failing or refusing to deal with union delegates, or from hindering, obstructing or preventing the exercise of union delegate rights. Civil penalties could be imposed on employers for breach of these prohibitions. Maximum penalties of A$18,780 (approx. US$11,930) for individuals and A$93,900 for corporations can be imposed.

If passed in their current form, the new rights would enable union delegates to enter workplaces where there are very few current members for the purposes of recruiting new eligible members. We anticipate that this section of the proposed Bill will be resisted strongly but that, if passed, it would significantly increase union presence in workplaces across Australia where workers are covered by a modern award or enterprise agreement.

Labour hire

Proposed commencement – day after Royal Assent

The proposed amendments would empower the Fair Work Commission (FWC) to issue a ‘regulated labour hire arrangement order’. The order would guarantee that labour hire employees are paid the same as employees doing the same role for the host employer under an enterprise agreement. The Bill incorporates specific exceptions including for small business host employers and training agreements; ‘genuine’ service contractors, determined by a multi-factorial test considering whether work performed is principally for the provision of a service; and when the employee’s engagement period is shorter than three months.

The government has suggested that this change would only impact those employers currently taking advantage of a ‘loophole’ to undercut enterprise agreement pay rates with labour hire workers. However, we anticipate that disputes under these new provisions would include a far wider range of workers, and lead to greater uncertainty in engaging labour on demand.

Casual employee changes

Proposed commencement – 1 July 2024   

A new definition of ‘casual employee’ will be introduced under the Bill. The new definition centres on whether there is an absence of a firm advance commitment to continuing and indefinite work based on the real substance, practical reality and true nature of the employment relationship.

This will replace the current law which provides for the primacy of the written terms of the employment contract between the parties, as decided by the High Court in 2022. Under the proposed new definition, “firm advance commitment” can be construed from the parties’ conduct or a “mutual understanding or expectation” outside the written terms of the contract.

As anticipated, the Bill would also allow for casual employees to issue a 'change notification' to apply for conversion to permanent status every six months. This will be in addition to the current regime which requires employers to offer conversion to casual employees with 12 months’ service who have been working a regular pattern of hours for the past six months. The FWC will have jurisdiction over disputes about conversion and will be able to impose binding decisions about employment status.

The Bill also proposes strict anti-avoidance measures, including prohibitions on intentionally changing patterns of work; and a new regime to determine and prohibit sham casual employment arrangements, similar to the existing sham contracting regime.

These changes will significantly change how employers can use casual employment. While the Bill proposes to apply the changes to the definition of casual employee prospectively only, the patchwork of approaches to casual employment over the past five years has created confusion and disputes between employers and employees, many of whom are not sure their status or rights. A further change, while aimed again at closing an apparent 'loophole', will likely add to the confusion, complexity and administrative burden for all involved.

Employee-like workers

Proposed commencement – 1 July 2024

New rules for employee-like workers are aimed at capturing a wider range of ‘employment-like’ relationships. The Bill proposes to:

• regulate gig economy workers and road transport workers through the FWC, including by authorising the FWC to establish equitable minimum standards for those workers – factors to be considered include the level of bargaining power and control the workers have;
• empower the FWC to hear disputes from gig economy workers seeking reactivation or reinstatement to a platform if they believe they have been unfairly removed; and
• empower the FWC to hear disputes brought by independent contractors against principals (where the independent contractor earns less than the high-income threshold).

While not all organisations will engage workers of this type, there is no doubt that, for those that do, this will create significant commercial and practical change and added complexity to their business practices. 

Wage theft

Proposed commencement – by proclamation or not later than 1 January 2025

The Bill introduces a new criminal offence targeting intentional wage theft, accompanied by provisions for ancillary liability. It specifies penalties, including imprisonment for up to 10 years and financial fines of up to A$7.8 million or three times the value of the underpayment.

The Bill grants the Fair Work Ombudsman (FWO) discretion to forgo criminal wage theft proceedings when businesses enter into cooperation agreements.

These changes significantly increase the FWO and the court’s powers in relation to serious wage theft offences. While this change is aimed at the most serious, intentional offences, we anticipate that the increased powers and new threshold tests will increase the number and scope of investigations and prosecutions. We also anticipate that the new powers will force otherwise compliant employers into cooperation agreements out of fear of serious consequences, increasing compliance and administrative costs.

Other proposed changes

Other changes proposed under the Bill include:

• granting authority to a specialised road transport panel within the FWC to define baseline criteria for road transport owner-drivers, encompassing aspects such as rates and 'fair payment times', and to handle disputes related to unfair contract terminations;
• changes to the Commonwealth Work Health and Safety legislation to significantly increase penalties for industrial manslaughter – including up to 25 years jail for individuals and up to A$18 million fines for body corporates where there is gross negligence or recklessness causing the death of a worker. While these changes will only directly apply to Commonwealth employees, given that the Commonwealth law is model legislation, we anticipate other State and Territory jurisdictions will follow suit;
• expanding anti-discrimination and adverse action provisions to include employees who are victims of domestic violence; and
• further changes to enterprise bargaining including in relation to multi-employer agreements and the ‘Better Off Overall’ test. This test is used by the FWC to evaluate registration agreements against FWC awards to ensure that employees receive better overall treatment under the registration agreement than they would under the relevant award.

Compliance and financial impact 

According to the regulatory impact statement attached to the Bill, the labour hire requirements – to ensure that labour hire workers receive compensation equal to that of direct employees – would result in an additional A$5.1 billion in wages over ten years or A$510 million annually for 66,446 workers.

Enforcing minimum standards in the gig economy is estimated to increase wages by A$4 billion over ten years, equivalent to A$403.8 million per year. This calculation is based on the assumption that workers in the food delivery, ride share, and care economy sectors receive pay rates similar to casual modern award rates.

The indirect costs, including additional compliance costs, will likely be significant for businesses generally.

Co-written by Yuliya Chis of Pinsent Masons.